RUMOR: Amazon wants to rent Netflix and never return it

[ZeoTiVo]

thread started in happy Hour (http://www.tivocommunity.com/tivo-vb/showthread.php?t=429567) that I think many who only view CoffeeHouse side would be interested in.

basically rumor of Amazon looking to buy Netflix

[Davis Freeberg]

Not sure that I buy into this one. Because Netflix has shipping centers in every state, it would subject Amazon to sales taxes for everything they sell. Buying Netflix would be a good prize to have, but I don't think Amazon would be the one to do it. It would be much too expensive for their business.

[eric_n_dfw]

I've bought many items from Amazon that shipped from places other than Washington. I assume they have agreements with other distributors that ship product closer to the customer to save on UPS rates.

[Dan203]

Buying Netflix would not necessarily mean they'd have to pay sales tax in every state with a Netflix distribution center. They could keep Netflix as a separate company and it wouldn't effect Amazon.com sales at all.

That being said I'm not sure why they would. Eventually the DVD by mail service is going to go away and Netflix is going to become a streaming only service. Amazon already has their own streaming service, so all they would be buying is a mial order business that's probably going to be gone in 10 years. Unless maybe there is some underlying technology or patents that Netflix has that Amazon wants.

Dan

[ZeoTiVo]

Unless maybe there is some underlying technology or patents that Netflix has that Amazon wants.

Dan

I see it as licenses - Amazon has a good handle on download license for newer stuff but netflix has the deeper streaming licenses wrapped up along with a lot of TV series. Combine those two sets and you have a really nice catalog that is really attractive to a lot more consumers. Plus Amazon gets an instant ride on Roku and other devices that netflix has lined up.

[David Platt]

I've bought many items from Amazon that shipped from places other than Washington. I assume they have agreements with other distributors that ship product closer to the customer to save on UPS rates.

Amazon has ten distribution centers nationwide. That doesn't mean they're drop-shipping.

[bicker]

I think the reality of how much it really would cost to support video distribution over the Internet is becoming very obvious, and the smart folks at Amazon.com realize that they'd be better off starting out as the single leader, rather than as a distant second or third place.

[mr.unnatural]

Buying Netflix would not necessarily mean they'd have to pay sales tax in every state with a Netflix distribution center. They could keep Netflix as a separate company and it wouldn't effect Amazon.com sales at all.

That being said I'm not sure why they would. Eventually the DVD by mail service is going to go away and Netflix is going to become a streaming only service. Amazon already has their own streaming service, so all they would be buying is a mial order business that's probably going to be gone in 10 years. Unless maybe there is some underlying technology or patents that Netflix has that Amazon wants.

Dan
I don't buy that at all. Lots of people would prefer to rent the actual discs rather than stream inferior quality content. I could see DVD quality movies being streamed successfully but the vast majority of the country is way behind in the infrastructure required to stream full 1080p content. If NetFlix went to a stream-only service they'd lose more than just a few customers. Streaming is fine for casual viewers, but serious videophiles wouldn't tolerate it.

[bicker]

I don't buy that at all. Lots of people would prefer to rent the actual discs rather than stream inferior quality content.True but are there enough people willing to pay substantially more money for that, or do without such entertainment entirely? If not, and Internet video distribution becomes as simple for consumers, and less costly for distributors, than distribution by video disc, then we can expect to see distribution by video disc die. Just because it is something some people prefer doesn't mean it is immune from the realities of business.

At the very least, we might see DVD distribution die, replaced by Internet video distribution and BD (only) distribution, but I think even that could be in danger, or at least could end up being more expensive that some complainers online may prefer.

Streaming is fine for casual viewers, but serious videophiles wouldn't tolerate it.I've been finding that any group of people who's label ends with the root -philes is often made up of some people who are willing to incur significantly more cost to achieve what they want and some people who are not.

When the latter is the majority -- when there are enough -philes willing to accept something a little "less" -- that combined with the drive by consumers for the lowest prices and the drive by investors for the highest returns, will often result in increasingly less service for the purity that the -philes idealize.

[Raj]

Eventually the DVD by mail service is going to go away and Netflix is going to become a streaming only service.

Maybe 30 years from now, but not today when ISPs are actually lowering usage caps and true broadband is not available everywhere.

For example my ISP has a 60G usage cap for its most popular tier (10M/1M) and the highest residential tier has a 100G usage cap. Not even commercial accounts are safe, their cap is 75G.

[ZeoTiVo]

When the latter is the majority -- when there are enough -philes willing to accept something a little "less" -- that combined with the drive by consumers for the lowest prices and the drive by investors for the highest returns, will often result in increasingly less service for the purity that the -philes idealize.

and a combined Amazon/Netflix will have the various delivery methods to fit anywhere along that spectrum covered. It becomes a matter then of only being astute enough to fund the right mix of delivery at the right prices.

[chocophile]

I've rented a few Amazon unbox movies, and was underwhelmed. you don't get all the extras: features, deleted/extended scenes, commentary, etc. I'll keep renting discs (and borrowing them from my local library when I can).

If Amazon, netflix, or someone else can deliver the content on a DVD, I'll give them another look.

[Dan203]

I don't buy that at all. Lots of people would prefer to rent the actual discs rather than stream inferior quality content. I could see DVD quality movies being streamed successfully but the vast majority of the country is way behind in the infrastructure required to stream full 1080p content. If NetFlix went to a stream-only service they'd lose more than just a few customers. Streaming is fine for casual viewers, but serious videophiles wouldn't tolerate it.

Quality is subjective. I've watched a few of the HD movies from both Amazon and Netflix and they are perfectly acceptable to me. Sure Blu-Ray is a little better, but if it's a trade between slightly better quality and instant gratification I think most people would choose the later.

Just look at the music industry. The audio you download from iTunes is not as good as what you get from a real CD, but the vast majority of people would still rather get the song/album now then wait 2 days for the CD. Even if it does mean it's slightly lower quality.

As for the bandwidth problems... I don't think they will be a problem. First off bandwidth will continue to increase over the next 10 years just as it has over the last 10 years. Secondly technological improvements will continue to make it so you can get better quality from the bandwidth that is available.

The only thing that might stifle this whole thing is the bandwidth caps that some ISPs are starting to impose. However I think that as more and more legitimate services start to use greater amounts of bandwidth, consumer and political pressure will force these caps to go away or at the very least increase to a more reasonable value.

Like it or not digital distribution is the future. In fact I'd be willing to bet that Blu-Ray is the last physical media format we ever see used for distribution of video.* I think that by the time it's come to the end of it's life digital distribution will have improved to a point where physical media is no longer necessary.

Dan

* Given the specs of Blu-Ray I think it could be a viable media format for a good 15-20 years.

[lrhorer]

Quality is subjective. I've watched a few of the HD movies from both Amazon and Netflix and they are perfectly acceptable to me. Sure Blu-Ray is a little better, but if it's a trade between slightly better quality and instant gratification I think most people would choose the later.
So what, you're saying you think VHS will win out over Betamax? You're nuts! :D

As for the bandwidth problems... I don't think they will be a problem. First off bandwidth will continue to increase over the next 10 years just as it has over the last 10 years.
Yes, but so will the avarice of the CATV companies. As it is now, they want to charge customers more money mostly because they can get it, not because it's actually costing them a great deal more to deliver the traffic. Secondly, many MSOs perceive internet video to be a competitor to their CATV offerings, and many MSOs have close ties to the MPAA, who perceives internet video to be even more of a threat. They are in no hurry at all to encourage the competition.

Secondly technological improvements will continue to make it so you can get better quality from the bandwidth that is available.
There are very distinct limits to how far that can go.

Like it or not digital distribution is the future. In fact I'd be willing to bet that Blu-Ray is the last physical media format we ever see used for distribution of video.*
I doubt that very seriously. The need to transport and store data in a compact physical form has increased with time, not decreased. It's true the transport of data via electronic means is growing much faster than the need for portable physical storage, but that doesn't mean the need for such storage is shrinking or will shrink in the near future.

I think that by the time it's come to the end of it's life digital distribution will have improved to a point where physical media is no longer necessary.
I disagree completely. While I know for a fact the current storage methods will fade away - they are already inadequate, there are just far too many situations where a portable storage solution is a must, and the number of such situations is only going to grow for the foreseeable future.


* Given the specs of Blu-Ray I think it could be a viable media format for a good 15-20 years.
That depends on how one defines it. Floppies are still in use for some applications. Are they still a viable media format? OTOH, Blu-Ray are far too small for many applications as it is. It would cost me a fortune to back up my servers to Blu-Ray disc, yet I really need something to back up my servers, since at the moment I don't have a viable offline, off-premise storage solution.

[MichaelK]

what Dan said

laughing.

But more specifically broadband speeds will only increase of the next 10 years. They will get to a point where they will be viable for blueray like quality for many many people. Moores law (or some derivative) sure seems to have some connection to broadband technology.

look at broadband speeds both wired and wireless over hte last 10 years. I know the wired speeds have increased for me from maybe 768k dsl to 10m cable broadband- and if i ponied up for more comcast just upgraded my area for their new docsis 3 service which i think is 25 or 50m. Many in the NYC/NJ/Philly area have 50m avalible to them via fios also.

My cell phone has gone from 28.8k to 1-2m EVDO downloads with sprint's 4g wimax 10 times that again.

the Obama administration is making all kinds of noise about telecom antitrust and regulation moves. So things aren't going to continue on the path they have been. So the marketplace (or regulated marketplace) will be changing and can catch up with the technology.

there's no physical reason that streaming or downloaded content couldn't have closed captions, directors cuts/commentary, and all the other extra's that disks do. If the market cares about that stuff then someone will find a way to provide it.

I'm not sure if physical delivery of media will completely go away- but itunes certainly has shown that buying a physical disc isn't a necessity for the unwashed masses. There's billions in the stimulus bill for rural broadband- not sure if that will get everyone covered- but maybe it will....

[Davis Freeberg]

That being said I'm not sure why they would. Eventually the DVD by mail service is going to go away and Netflix is going to become a streaming only service. Amazon already has their own streaming service, so all they would be buying is a mial order business that's probably going to be gone in 10 years.

Over the last decade we've seen at least a couple dozen companies try to tackle internet delivery and all of them have fallen flat. Whether we're talking Akimbo, MovieBeam, CinemaNow, Joost or whoever, no one has been able to crack this nut.

With technology more advanced we've seen Apple and Amazon jump into this market, but they've had very minimal success selling video online. The biggest problem comes down to the licensing. Because the studios, don't want to sacrifice the $19.99 DVD that consumers are still buying, tech companies have been forced to accept impossible minimum purchase orders, especially for more recent content. This means that to stock any type of real selection, you'd have to believe that if you build it they will come and lose millions while you're waiting for the digital audience to show up. Of course people didn't come and many of these services have failed.

The reason why Netflix has been so successful with digital video is because of those shiny discs that people hate so much. Because they can use the first sale doctrine to buy any DVD they want, it's hard for the studios to charge more then what it would cost Netflix to just ship a disc instead. By using their subscriber ratings data, they've been able to cherry pick the movies that are in most people's queues while creating demand for older off the beaten path movies for the studios. This means that Netflix is paying less than Apple or Amazon, but the title quality suffers.

Since Redbox and Blockbuster are the only other two disc solutions left, there aren't a lot of options for digital firms who want the same competitive advantage. Discs will eventually go away, but the money saved from production costs will go straight into the movie studio's pocket.

In the case of Netflix, they normally pay about 40% of the revenue they get in to buy DVD content. The remaining 60% represents gross profit. With streaming they are paying 60% to the studios, but don't have to pay the USPS to ship the disc. The result is a small profit for Netflix (over disc rentals) and a massive built in audience for VOD services.

While Amazon and Apple must convince a consumer to spend money on their service to get them hooked, Netflix's "unlimited" plan removes that obstacle and allows consumers to experiment without feeling like they are paying more.

You may not believe in the future of the disc, but companies will need those shiny DVDs if they want to make a dent on digital streaming. So far Netflix is the only one to have figured this out, which is why a company like Amazon would want all those DVDs that no one else seems to appreciate.

Having said that, I still don't think Amazon is interested.

[bicker]

In the case of Netflix, they normally pay about 40% of the revenue they get in to buy DVD content. The remaining 60% represents gross profit. So there is no cost to having warehouses, staffing them with workers and equipment, and shipping discs around the country?

[slowbiscuit]

He said gross profit, not net. Of course there would be many costs for distribution of DVDs. What I would like to know is, how much does Netflix pay for a first-run DVD?

[bicker]

Ah... thanks for the correction. I overlooked the nuance. My bad.

[ZeoTiVo]

Having said that, I still don't think Amazon is interested.
I agree that the physical disc is still king for now but it really only comes down to convenience for the consumer.
Amazon has the easy way to get a movie downloaded on DVD release day but after that how much is anyone willing to spend on buying digital media a piece at a time.
So for the buyers out there Amazon UNBOX is really not the option. For the renters you have a gradient. If you really only rent 1 or 2 movies a month if there are 2 that are of interest that month - then the one off 4$ rental is good and redbox kicks butt on that price if you are willing to take the time to return. If you start going over that line into 3 or more a month then netflix sub starts to add value and if like me you consume 25 or more pieces of media a month(I currently am doing entire run of Babylon 5 via Netflix for instance) then it is a no brainer.

So neither service really has the full gradient in one place to combine for licensing deals and market share muscle. I can see how the combination of Amazon and Netflix would get the spreadsheet guys going this is good. That could well be the basis of the rumor even - everyone but the key business people going - hey that would be good.

[marksman]

Not sure that I buy into this one. Because Netflix has shipping centers in every state, it would subject Amazon to sales taxes for everything they sell. Buying Netflix would be a good prize to have, but I don't think Amazon would be the one to do it. It would be much too expensive for their business.

Most states are enacting laws that enable them to do this for companies who have affiliates in their state, and Amazon is not disbanding affiliates, so it is only a matter of time before the no sales-tax thing goes away in all states anyways.

[johnf@home]

Most states are enacting laws that enable them to do this for companies who have affiliates in their state, and Amazon is not disbanding affiliates, so it is only a matter of time before the no sales-tax thing goes away in all states anyways.

That is incorrect - Amazon *is* terminating affiliate programs in states which pass such laws. Rhode Island, North Carolina and Hawaii have reportedly lost all their Amazon affiliations - Minnesota will probably be next.

[Dan203]

I doubt that very seriously. The need to transport and store data in a compact physical form has increased with time, not decreased. It's true the transport of data via electronic means is growing much faster than the need for portable physical storage, but that doesn't mean the need for such storage is shrinking or will shrink in the near future.


I disagree completely. While I know for a fact the current storage methods will fade away - they are already inadequate, there are just far too many situations where a portable storage solution is a must, and the number of such situations is only going to grow for the foreseeable future.

I'm not saying that all portable storage will go away. I think iPods, and similar portable media players, will be around for a very long time. What I'm saying is that I think that Blu-Ray will be the last physical media the MPAA uses to sell video content to consumers. I believe that by the time Blu-Ray comes to the end of it's life digitial distribution will be prevalent enough that creating a new disc format will be unnecessary.

That depends on how one defines it. Floppies are still in use for some applications. Are they still a viable media format? OTOH, Blu-Ray are far too small for many applications as it is. It would cost me a fortune to back up my servers to Blu-Ray disc, yet I really need something to back up my servers, since at the moment I don't have a viable offline, off-premise storage solution.

I wasn't saying that Blu-Ray as a storage format would still be viable in 15 years, I know that computer based storage formats will continue to march on. All I was saying is that I think Blu-Ray will still be a viable method of distributing video content in 15+ years.

Dan

[Dan203]

Over the last decade we've seen at least a couple dozen companies try to tackle internet delivery and all of them have fallen flat. Whether we're talking Akimbo, MovieBeam, CinemaNow, Joost or whoever, no one has been able to crack this nut.

The MPAA will be forced to come around eventually. They might like that extra money they make off of those shiny discs, but eventually they will succumb to pressure from consumers and business partners like Netflix, Amazon and Apple.

Just look at the RIAA. They were in the same position as the MPAA is in now 8-10 years ago, and today most music is sold digitally and DRM free. As bandwidth increases and downloading/streaming video becomes a viable option for more people the MPAA will be forced to follow suit.

Dan

[GreenMonkey]

Just look at the RIAA. They were in the same position as the MPAA is in now 8-10 years ago, and today most music is sold digitally and DRM free. As bandwidth increases and downloading/streaming video becomes a viable option for more people the MPAA will be forced to follow suit.

Dan

Yes, but physical CD sales still remain a bigger source of profit for them. And digital music sales have not overtaken physical sales. Yet. It'll take much, much longer for something similiar to happen to DVD/BD.

[Dan203]

And digital music sales have not overtaken physical sales.

I'm not so sure about that. Based on what I could find the RIAA only reports sales figures as dollar amounts, which is bias. Digital downloads are less profitable, and allow the flexibility of buying a single song rather then a an entire album, so it makes sense that the dollar amounts would favor CD sales. However I think if they actually tracked the number of individual consumers purchasing each type of music digital would have higher numbers.

As for it taking longer for something similar to happen with video sales... I disagree. I think that the RIAA has done all the fighting, made all the mistakes and ultimately created a precedent which will make the road easier, and more clear, for the MPAA. Which in turn should allow them to make it all happen faster, not slower. Plus as younger generations, who have never known a world before the internet and iTunes, get older they are going to expect everything to be available via digital downloads and will drive the market faster then previous generations which are accustom to the "old way" of having to buy/rent a physical tapes/disc.

In my lifetime (I'm 30) I fully expect to see a world where all media ever created (movies, music, books, etc...) will be available on demand via some sort of digital download service. I just hope it happens sooner, rather then later, so that I personally can get the most out of it before I'm gone. :)

Dan

[Revolutionary]

Maybe 30 years from now, but not today when ISPs are actually lowering usage caps and true broadband is not available everywhere.

For example my ISP has a 60G usage cap for its most popular tier (10M/1M) and the highest residential tier has a 100G usage cap. Not even commercial accounts are safe, their cap is 75G.

Wow, that sucks. I would have burned through almost half the month yesterday! I downloaded 2 HD movies each on my Tivo and PS3 -- somewhere in the neighborhood of 25 GB (one, a Harry Potter movie on the PS3, clocked in at 9.8GB alone).

[Dan203]

For example my ISP has a 60G usage cap for its most popular tier (10M/1M) and the highest residential tier has a 100G usage cap.

Netflix uses 2600-3800kbps for it's HD streaming service. (tops out at 1500kbps for SD) If you average that out it means that you could watch ~42 hours of HD content before you hit the 60GB usage cap, and ~70 hours before you hit the 100GB usage cap. For casual users (2-3 movies a week) the 60GB cap would be fine, and heavy users could move up to the 100GB plan and be able to watch a HD movie every night without running up against the cap.

I'm not saying that I agree with the usage caps, they suck, I'm just saying that for most people they're not really preventing them from using these video streaming services. (except maybe those TW customers in Beaumont, TX who are capped at just 5GB)

Dan

[Davis Freeberg]

Here's an interesting story on this very topic. The money isn't necessarily going from disc to digital but from owning to renting. It further reinforces the importance that the video store/DVD will play in the transition to digital.

http://www.cnbc.com/id/31969248/site/14081545?__source=yahoo|headline|quote|text|&par=yahoo (http://www.cnbc.com/id/31969248/site/14081545?__source=yahoo|headline|quote|text|&par=yahoo)

[ZeoTiVo]

Here's an interesting story on this very topic. The money isn't necessarily going from disc to digital but from owning to renting. It further reinforces the importance that the video store/DVD will play in the transition to digital.

http://www.cnbc.com/id/31969248/site/14081545?__source=yahoo|headline|quote|text|&par=yahoo (http://www.cnbc.com/id/31969248/site/14081545?__source=yahoo|headline|quote|text|&par=yahoo)

to me a rental is as much as saying streaming. if Netflix had the title I wabted to rent in its streaming queue I would get it that way no qualms.
I ma that customer who does not have a big HDTV and needs a Blu-Ray then to fill it properly. I am not alone in that. The only thing holding streaming back is bandwidth and the hardware to watch it on the TV easily enough. It wont be long that people on this board routinely hook their Tv to broadband and it wont be long after that when most anyone hooks a new TV to broadband.
Renting will become digital copies soon enough.